MINISO Group Holding Limited's Undervaluation Opportunity Post-Earnings Miss: A DCF Perspective

MINISO Group Holding Limited (NYSE: HNSG) recently faced a sharp selloff following its Q1 2025 earnings report, with shares plunging 17.5% as statutory EPS missed estimates by 31%. However, this reaction overlooks the company's robust revenue growth, structural advantages, and a compelling valuation supported by discounted cash flow (DCF) analysis. For investors willing to look past the short-term noise, MINISO presents a rare opportunity to buy a global retail leader at a significant discount to intrinsic value.

DCF Analysis: Why MINISO Is Trading at a 45% Discount to Fair Value

To assess MINISO's intrinsic value, consider its DCF model. Analysts at GuruFocus estimate MINISO's fair value at HK$52.00 (US$6.70), while its current price hovers around US$18.29, representing a 45% discount. Key inputs driving this valuation include:
- Revenue Growth: A 18% annualized growth rate through 2025, fueled by overseas expansion (30% revenue growth in Q1) and store optimization (27% higher efficiency in new outlets).
- Discount Rate: 12%, reflecting MINISO's low debt (Snowflake Score: 6/6) and stable cash flow (RMB7.26 billion in reserves).
- Terminal Value: 10x EBITDA, a conservative multiple given MINISO's global scale and IP-driven margins.

Even with conservative assumptions, the math is compelling. At current prices, investors are paying just 14.7x forward P/E, far below the retail sector's average of 16.13. This disconnect arises because the market fixates on short-term margin pressures (down to 13.3% from 16.6%) while ignoring long-term catalysts.

Analyst Revisions Highlight a Mispriced Risk-Reward Ratio

Despite the Q1 miss, analysts remain bullish on MINISO's long-term trajectory. Key revisions include:
- Revenue Forecasts: 2025 revenue maintained at RMB20.8 billion, up 18% from 2024, driven by 70% of new stores opening overseas.
- EPS Adjustments: 2025 EPS cut slightly to RMB8.28, but this reflects one-time costs (e.g., U.S. inventory buildup) rather than structural issues.
- Price Targets: A consensus of US$23.47, with bulls like GF Value targeting US$32.40 (77% upside). Even cautious Deutsche Bank's US$20 target implies a 9% return from current levels.

The consensus remains skewed toward "Buy" (average rating: 2.1/5), with minimal downgrade pressure. This stability suggests analysts see the Q1 miss as a temporary hurdle, not a harbinger of decline.

Risks vs. Rewards: A Margin of Safety Exists

Bearish arguments focus on three risks:
1. Domestic Same-Store Sales Declines: Mid-single-digit drops in China remain a concern, but MINISO's Q2 trends show improvement in Tier 1/2 cities.
2. Margin Pressures: Selling expenses rose 45% year-over-year, but store efficiency gains (27% improvement) and IP partnerships (e.g., Stitch collections) are stabilizing margins.
3. Debt Costs: Convertible bonds increased financial expenses, but MINISO's strong cash flow (RMB7.26 billion) and disciplined capital allocation (RMB260 million share buybacks) mitigate this risk.

The rewards, however, are asymmetric:
- Overseas Dominance: 39% of MINISO's revenue now comes from overseas, with markets like Mexico and the U.S. showing 30%+ growth.
- IP & Store Optimization: Exclusive licensing deals (Disney, Studio Ghibli) and store format upgrades (larger, efficient layouts) are driving a 23.4% EBITDA margin.
- Dividends: A 3.6% yield with a 55% payout ratio signals confidence in cash flow resilience.

Conclusion: A Buy Signal for Patient Investors

MINISO's earnings miss created an emotional selloff, but fundamental metrics paint a starkly different picture. With a 45% discount to intrinsic value, a 24% revenue CAGR, and a strong balance sheet, the risk-reward ratio favors buyers. Analysts' revised targets and the stock's historical volatility (currently trading at the lower end of its 52-week range) suggest further downside is limited, while upside potential remains substantial.

Investors should act now: the market's fixation on short-term margin pressures ignores MINISO's global growth, IP-driven moat, and undervalued shares. This is a rare chance to buy a scalable retailer at a price that rewards patience.

Call to Action: MINISO (HNSG) offers a 45% upside to fair value with manageable risks. Investors seeking exposure to global retail growth and undervalued equities should establish a position before the market reassesses its intrinsic value.